AAIG's MACRO PULSE #15
Written by Jochem Verzijl
Hi guys, welcome again to our Macro Pulse Series! Last week was the week crude oil hit $70, the May PCE confirmed inflation is still climbing in the official data, and the ceasefire saw its most violent breakdown since it was signed. Tankers were struck again, US strikes on Iran resumed, and within 48 hours both sides agreed to stop and meet again in Doha. The compression of that cycle, from weeks to days, tells us something about what kind of agreement this really is. We want to spend time on what happened, and more importantly, on what it means. Let's dive in!
1) KEY METRICS / DATA POINTS
For the key data of last week, Thursday’s PCE release was the most important domestic data point. Headline PCE rose 0.4% on the month and 4.1% annually, the highest reading since April 2023 and up from 3.8% in April. Core PCE rose 0.3% on the month and 3.4% annually, slightly above the 3.3% consensus and the highest annual core reading since October 2023. Personal spending rose 0.7% on the month against a 0.6% forecast, and personal income also rose 0.7% against a 0.4% forecast. The saving rate ticked up to 3% from 2.6% in April. Q1 GDP was also revised up to 2.1% from 1.6%.
The headline numbers here confirm what the CPI release flagged two weeks ago. Official inflation is still climbing. The energy that drove May higher has come out of the market substantially in June, with WTI roughly 38% below its May peak. Whether that shows up in materially lower June and July prints, we will know when the data is released. The lag between energy markets and official inflation prints is now the most important variable in the inflation picture, and we are reading May data while living in June reality. Those are different things.
The core number is the one that deserves the most attention, because it is not directly tied to oil. Core PCE at 3.4% annually with a 0.3% monthly print confirms that the broadening of inflation into shelter, services, and tariff-affected goods has continued. That is the part that does not unwind automatically when oil falls. It is also the part that has built quietly while the war has dominated the headlines.
On the geopolitical side, the week traced an arc compressed into days. Talks opened in Geneva on Monday June 22 without IAEA inspectors present, despite the MOU explicitly committing Iran to supervised nuclear activities. The technical team worked through Wednesday and Thursday on the inspection dispute, without resolving the political sequencing: Iran’s deputy foreign minister has tied inspection access to full sanctions termination, which is a final-deal item rather than an interim one.
Then the week broke open. Iran struck a commercial container ship in the strait on Thursday. The US responded with strikes on Iranian targets on Friday. Iran struck a supertanker carrying 2 million barrels of Qatari oil on Saturday. US Central Command launched strikes against ten Iranian military targets in and near the strait on Sunday. Trump warned on Truth Social Sunday that “the Islamic Republic of Iran will no longer exist” if escalation continued. By Monday, both sides had agreed to halt direct attacks and allow commercial vessels to transit freely. Talks were rescheduled for Doha on Tuesday. Same pattern, different week…
Oil moved in step with all of this. Brent closed at $80.57 on Friday June 19. By Friday June 26, August Brent had settled at $71.99 and August WTI at $69.23, with WTI closing below $70 for the first time since February 27. That is the day before the war began. Monday saw oil rebound modestly on the talks announcement, with WTI at $70.56 and Brent at $72.91. As of Tuesday (time of writing), Brent is trading near $74 with WTI hovering around $70. The war premium has been erased.
The EIA's most recent Short-Term Energy Outlook assumes vessel traffic ramping back to pre-conflict levels will not be complete until early 2027, which is worth keeping in mind when reading the oil price
2) AAIG’S PERSPECTIVE
The most important development of the week is the fluctuations in oil, and we want to be careful about what it actually means.
WTI below $70 with the conflict still ongoing is the market’s vote that this ceasefire holds in form even if it breaks repeatedly in substance. We think that is the right way to read it. The market is not pricing peace, but it is pricing the absence of full-scale war, partial functionality of the strait, and the assumption that weekends like the one we just saw stay contained. Those are three separate assumptions, and they all need to be right for the price to be right.
We think the market may be correct about the first two. The third is the one we are less sure of. The events of last week did not break the framework, but they showed how thin the margin is. Both sides struck each other repeatedly. Tankers were hit. The president of the United States posted a message implying he was prepared to end the existence of a sovereign nation. Within four days, both sides were back at the table. The cycle works. It also runs much closer to genuine escalation than anyone wants to acknowledge.
This is the kind of arrangement that holds until it does not, and the things that would make it not hold are not particularly difficult to imagine. Israel could escalate against Hezbollah. Iran could miscalculate one of these tit-for-tat exchanges. A weekend incident could fail to resolve in 96 hours, and commercial shipping could pause for longer than the market can comfortably digest. They are simply the kind of events that the current oil price implicitly assumes will not happen.
We have written before about the broadening of core inflation, and the May PCE confirms that this is still in motion. Core PCE at 3.4% is not consistent with a Fed that has imminent room to cut. The headline number may decelerate sharply in June and July, but the core picture is what determines policy. Services inflation, shelter, and the tariff layer continue to print firm.
This puts Warsh in a particular position heading into the July 28-29 meeting. He has been clear that he wants room to ease. The committee around him, where 17 of 18 members at the June meeting saw inflation risks tilted to the upside, is moving in the other direction. If headline data softens meaningfully in June and core moderates even slightly, he has cover to soften the dot plot’s hawkish lean. If core stays at 0.3% monthly and the broadening continues, the September meeting becomes another hold and the 2026 hike scenario stays alive. The data over the next four weeks will decide which path he is on, and his preferences will not override what the numbers say.
The IAEA situation deserves its own paragraph. Iran’s stockpile of 60-percent-enriched uranium was last verified on February 27 at 440.9 kg, which was 121 days ago (I am quick with math). The MOU commits Iran to IAEA supervision but Iran has now made inspection access conditional on full sanctions termination, which is supposed to be a final-deal deliverable. The Geneva technical team has no mandate to fix this. Grossi’s tone shifted in 48 hours last week from confident prediction to public frustration. The substantive nuclear question is not closer to resolution than it was when the MOU was signed two weeks ago. It even may be further from it.
For asset prices, the picture comes down to this. Equity markets and oil are pricing normalisation. Bond markets are pricing inflation persistence. Both can be right for a while. The reconciliation comes when either oil moves materially in one direction or another, or the inflation data forces the Fed’s hand. We are entering a period where headline data may flatter the picture, core data may continue to tell a different story, and the geopolitical situation is genuinely unstable but contained. That is a difficult environment to position for, because the obvious trade (faded oil, lower rates, equities up) assumes the floor holds. We are less confident in the floor than the market currently is.
3) WHAT TO WATCH
Three things will shape July, and they are all variables that are connected.
The first is whether the Doha talks produce anything substantive on the nuclear question. The technical team in Geneva has been working on inspection access. The political-level conversation in Doha needs to bridge Iran’s sequencing demand with the US insistence that IAEA access is an interim deliverable, not a final one. Without that bridge, the MOU’s commitment to IAEA supervision is hollow, and any final deal becomes much harder to reach. If Doha ends with another vague statements about progress without concrete movement on inspections, the agreement is functionally an oil-for-ceasefire arrangement and nothing more.
The second is whether the oil floor at $70 holds through July. We have argued the market is voting on the absence of war, not the presence of peace. That vote is conditional on no major escalation that interrupts commercial shipping for more than a few days at a time. The base case is that tanker transit counts recover gradually from this past weekend’s slowdown. If they stall below pre-conflict levels and stay there, the inventory drawdown continues even with sanctions relief on Iranian exports, and the floor becomes harder to defend into August.
The third is the June CPI release on Tuesday July 15 and the June PCE on Thursday July 31. These two prints will set the tone for the July 28-29 FOMC meeting and the September meeting. The headline numbers will likely show energy relief feeding through. The core numbers are what matter for the Fed’s actual reaction function. If June core CPI prints at 0.2% monthly with annual core PCE moderating to 3.3% or below, Warsh has the data he needs to begin softening his tone. If core stays at 0.3% monthly and PCE holds at 3.4%, the September meeting will be another hold and the hike scenario stays alive.
The thread this week is that the market has priced an outcome more stable than the events currently support, and we have to be honest about why. The headline data may flatter the picture in the coming months. The structural problems do not move with it. The IAEA stalemate, the unresolved nuclear question, the compressed escalation cycles, the broadening of core inflation, none of these is closer to resolution than they were two weeks ago. We are not arguing that something bad is imminent. We are arguing that current asset prices reflect more certainty about the path forward than the situation actually shows us. The next escalation will come, and when it does, the floor will be tested. The probability that it holds is real but not as high as $70 oil and continued equity strength suggest.
Thanks for reading this 15th pulse, and see you at the next one!
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